The headline: Travel Retail division losses were cut in the US with sales up +4% on a like-for-like basis to US$142 million, but the group has “yet to see the anticipated upturn.” More hotel stores closed and US assets written down.
Key profit figures: Profit before tax and exceptional items up £2 million (US$3.2 million) to £91 million (US$143.8 million); group operating profit before goodwill and exceptional items up +9% to £93 million (US$146.9 million). USA Travel Retail trading losses reduced by £2m (US$3.2 million) to £9m (US$14.2 million). ASPAC (Asia Pacific) Retail division profits flat at £5m (US$7.9 million).
Key sales figures: Total sales down -2% at £1.6 billion (US$2.5 billion); UK domestic retail sales down -2% and UK travel retail sales fell by -5% to £137m (US$216.4 million) but were up +4% on a like for like basis. USA Travel Retail sales down -10% and up +4% on a like-for-like basis and ASPAC (Asia Pacific) Retail division sales up +1%.
Comment: Group ceo Richard Handover said: “Underlying operating profit for the group has increased by +9% demonstrating the resilience of the main UK businesses in difficult trading conditions.
“We have yet to see the anticipated upturn in our USA Travel Retail business. This business continues to experience difficult trading conditions reflecting the well publicised subdued US economy and specifically the challenging US travel market. As a result, we have written down our US assets by a further £35 million (US$55.3 million).
Indicating a possible change in strategy relating to the US hotel store investments Handover said: “We have closed a further 33 loss making hotel stores and following a review of our cost base have reduced our central costs by -25% on an annualised basis. However, we continue to review all our options in respect of our USA Travel Retail business, particularly in relation to hotels, and seek solutions that will benefit all our stakeholders.
“We are currently confident about the Group’s prospects for the rest of the year, and our cashflow remains strong. We are encouraged by current trading in the UK businesses, but are mindful of the uncertain economic outlook and resulting possible impact on consumer confidence.”
UK Travel Retail sales fell by -5% to £137m (US$216.4 million), but were up +4% on a like for like basis. This difference reflects both the decision to withdraw from selling phonecards and the sale of ten stores to TMR at the end of the previous financial year.
USA Travel Retail sales decreased by -10% to £90m (US$142.2 million), but with like for like sales up +4%. The Group said trading in the US continues to be difficult with ongoing weakness in the US economy and, with events in the Middle East suppressing recovery.
The US Travel Retail business incurred an operating loss in the period of £9m (US$14.2 million), compared to £11m (US$17.4 million) a year ago. WH Smith said action has been taken to help mitigate any further losses. These include withdrawing from a further 33 loss-making hotel stores (making a total of 72 since September 2001), minimising capital expenditure and head office restructuring.
During the first half of the previous financial year WH Smith made a review of the carrying value of assets in the USA Travel Retail business and an exceptional charge of £27m (US$42.7 million) was recognised. In arriving at this charge, however, the company made assumptions about the rate of recovery of the US travel market. But these assumptions have proved optimistic as trading has fallen short of expectations. An exceptional charge of £35m (US$55.3 million) has therefore been booked in these first-half results.
About current trading, WH Smith said that In the six weeks to 12 April 2003, USA Travel Retail like-for-like sales are down -8% and Asia Pacific retail like-for like sales are down -3%. No figures were given for UK travel retail. The company also expressed concerns regarding the recent effects of SARS on Asian travel-related business.
